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"We think this bullish trend is just starting and could last more than a year. That can have significant implications for an investment portfolio, so this is a good time for investors to review their fixed income and commodity allocations and consider making adjustments."

SAN FRANCISCO--(BUSINESS WIRE)--A new report released by the Schwab Center for Financial Research, a
division of Charles Schwab & Co., Inc., examines the implications of a
strengthening U.S. dollar, and suggests investors should consider
reducing their exposure to international developed-country and emerging
market bonds, as well as to commodities.

“A
Strong U.S. Dollar Changes Everything” is the latest whitepaper from
Kathy A. Jones, vice president and fixed income strategist with the
Schwab Center for Financial Research. The whitepaper analyzes the U.S.
dollar’s recent strength in the context of the current global economy
and makes a case for why the trend is likely to be sustained over the
longer term. Jones says a rising U.S. dollar means that U.S. bonds are
likely to outperform international bonds from developed countries and
emerging markets, and commodities are expected to underperform.

“The U.S. dollar is near its highest levels since 2009, and has
appreciated by more than seven percent since May,” says Jones. “We think
this bullish trend is just starting and could last more than a year.
That can have significant implications for an investment portfolio, so
this is a good time for investors to review their fixed income and
commodity allocations and consider making adjustments.”

Key points in the whitepaper include:

A key driver behind the U.S. dollar’s strength is the performance of
the U.S. economy relative to other major economies around the globe.
The International Monetary Fund (IMF) estimates that U.S. GDP will
expand 3.1 percent in 2015 compared to estimated growth rates of 1.3
percent and 0.8 percent for the Eurozone and Japan, respectively. With
stronger growth, U.S. interest rates are significantly higher than
those in core European countries and Japan, making the dollar more
attractive for investors to hold. Additional factors supporting the
strong U.S. dollar are the declining U.S. current account deficit and
the diverging trend between U.S. monetary policy and the policies of
other central banks.

If the U.S. dollar continues to appreciate, the return on foreign
bonds is likely to lag behind the return on U.S. bonds. This is
especially true in the developed country bonds, where yields tend to
be lower than in the U.S.

In addition, a strengthening U.S. dollar is likely to cause
commodities to underperform as an asset class. Since most globally
traded commodities are traded in U.S. dollars, a stronger dollar tends
to send the prices of commodities lower, all else being equal.

“We think trimming exposure to foreign bonds and commodities to account
for a rising dollar makes sense,” says Jones. “That said, there are
risks to consider. International bonds offer valuable diversification in
an overall portfolio, and reducing holdings in these asset classes may
mean giving up some of this benefit.”

Jones notes that other factors investors should consider over the next
twelve months include an unanticipated shift in the path of the U.S.
dollar, a robust rebound in global growth, and a possible change in the
Federal Reserve’s timeline for tightening monetary policy.

Investors interested in learning more about investing in a strong U.S.
dollar environment can reach out to their Schwab financial consultant or
to a Schwab bond specialist.

The full whitepaper, part of Schwab’s Investing Ideas series, is
available here.

Schwab Investing Ideas offer analyses of key market trends and investing
opportunities investors can act on now from the Schwab Center for
Financial Research. More information, including other recently published
insights, can be found on Schwab’s
Investing Ideas page.

About Schwab

At Charles Schwab we believe in the power of investing to help
individuals create a better tomorrow. We have a history of challenging
the status quo in our industry, innovating in ways that benefit
investors and the advisors and employers who serve them, and championing
our clients’ goals with passion and integrity.

Past performance is no guarantee of future results.Forecasts
contained herein are for illustrative purposes, may be based upon
proprietary research and are developed through analysis of historical
public data.

The information here is for general informational purposes only and
should not be considered an individualized recommendation or
personalized investment advice. The type of securities and investment
strategies mentioned may not be suitable for everyone. Each investor
needs to review a security transaction for his or her own particular
situation. Data here is obtained from what are considered reliable
sources; however, its accuracy, completeness, or reliability cannot be
guaranteed.

All expressions of opinion are subject to change without notice in
reaction to shifting market, economic or geopolitical conditions.

Indices are unmanaged; do not incur management fees, costs, or expenses;
and cannot be invested in directly.

Fixed income securities are subject to increased loss of principal
during periods of rising interest rates. Fixed-income investments are
subject to various other risks including changes in credit quality,
market valuations, liquidity, prepayments, early redemption, corporate
events, tax ramifications and other factors.

Investments in currency involve additional special risks, such as credit
risk and interest rate fluctuations.

Commodity-related products, including futures, carry a high level of
risk and are not suitable for all investors. Commodity-related products
may be extremely volatile, illiquid and can be significantly affected by
underlying commodity prices, world events, import controls, worldwide
competition, government regulations, and economic conditions, regardless
of the length of time shares are held. Investments in commodity-related
products may subject the fund to significantly greater volatility than
investments in traditional securities and involve substantial risks,
including risk of loss of a significant portion of their principal value.

International investments involve additional risks, which include
differences in financial accounting standards, currency fluctuations,
geopolitical risk, foreign taxes and regulations, and the potential for
illiquid markets.